Stone crushing company is planning to purchase a wheel loader to be used for conveying raw stone to large stone crushing machine and loading crushed stone in trucks. Anew wheel loader can be purchased directly from caterpillar company for $150000.The new wheel loader will reduce the annual cost by $ 25500 and increase annual operating expenses by $ 4500.The useful life of the wheel loader is 20yrs .After 20years it will have a salvage value of $ 30000.The company uses straight line method depreciation for all assets.

a)Compute accounting rate of return of the wheel loader using average investment approach?

b) present a case in support of the use of accounting rate of return as an investments appraisal technique

Answer rating: 100% (QA)

a To compute the accounting rate of return ARR using the average investment approach we need to determine the average investment and the average annua... View the full answer